A municipal bond scam sounds like something that would be limited to small town city council meetings.
Instead, such an “unlawful payment scheme” is costing JPMorgan Chase more than $720 million in a settlement with the SEC. It agreed to pay a forfeiture of $646 million in termination fees and another $65 million in penalties.
The alleged scheme enabled J.P. Morgan Securities to “win business involving municipal bond offerings and swap agreement transactions in Jefferson County, Ala,” the SEC said in a press release.
NYT DealBook: The county, home of Birmingham, the state’s largest city, has been pushed to the brink of bankruptcy as a result of the bond offerings and credit default swap transactions involved in financing sewer projects. The county’s sewer debt grew to $3.9 billion, including the swap termination fees. The settlement reduces the sewer debt to $3.2 billion.
In addition to forfeiting the $647 million in fees, the S.E.C. said J.P. Morgan Securities would make a payment of $50 million to Jefferson County. It will also pay a penalty of $25 million. The firm settled the charges without admitting or denying the allegations against it.
In its complaint, the S.E.C. accused JPMorgan Securities and two former managing directors, Charles LeCroy and Douglas MacFaddin, of making more than $8 million in undisclosed payments to close friends of certain Jefferson County commissioners. The agency said those friends owned or worked at local broker-dealer firms that performed no known services on the transactions.
Muni-bond scandals are not limited to JPMorgan. Last week, Ashby Jones of the WSJ Law Blog highlighted the indictment by Manhattan grand jury of a Beverly Hills financial firm, CDR Financial Products, on charges that it rigged bids in order to invest municipal bond offering proceeds.
The Law Blog inquired whether muni-bonds have gone wild. Yes, it appears they have.
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